Avoid These Common Mortgage Mistakes
Financial security is paramount when taking out a mortgage, since it is likely to be the largest debt load you’ll ever carry. Protect your financial – and emotional – investments in your dream home by avoiding the following common mortgage mistakes.
Stretching Yourself Too Thin
Do you know someone who is “house poor?” That is, they live in a gorgeous dream home, but have little money to fund anything besides the mortgage? This can be a dangerous trap to fall into because paying too much for a home means you have little left to save for a rainy day, build a sufficient retirement fund, or grow a college fund for your children. Experts recommend spending less than 30 percent of your pre-tax monthly income on a mortgage payment in order to avoid stretching your finances too thin to support all your priorities.
Failing to Investigate Government-Backed Loans
The U.S. Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) offer some of the best mortgage loan terms on the market, from low down payments to below-market interest rates. If you believe you may qualify for one of these federal government loan programs, make sure to investigate them before choosing a mortgage loan product.
Making a Negligible Down Payment
Many lenders require a 20 percent down payment to get the very best rates, though they offer loans to folks who plan to put down much less, too. It can be tempting to put the minimum amount down – say, 5 percent – but it could hurt your finances in the long run. Not only will you likely be required to pay Private Mortgage Insurance (PMI), you’ll also get stuck with a higher interest rate for the life of the loan, unless you intend to refinance down the road.
Educating yourself about your personal finances, various loan products and mortgage terms will help you avoid entering into a mortgage agreement you’ll regret.
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